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HP's Snapfish Swims With Sharks

HP's new photo service undercuts its photo printer biz and has a major competitor.

Not long ago, Hewlett-Packard(NYSE:HPQ) shareholders were left to wonder whether the firm's acquisition of online photo site Snapfish.com -- for an undisclosed amount -- was a good deal. Today's expanded digital photo relationship with Walgreen(NYSE:WAG) should provide them with another head-scratcher. Simply put, HP's Snapfish will now offer customers the chance to pick up their images at a local Walgreen store, rather than wait for the photos to arrive in the mail.

Offering digital-camera buffs a chance to upload images and pick them up at their local drugstore -- within an hour -- is an idea so simple that it's a wonder no one thought of it before. In fact, Eastman-Kodak(NYSE:EK) and Sony(NYSE:SNE) already have in-store digital printing deals, though Kodak's is for self-run picture kiosks, and Sony's upload service is for next-day pickup.

So why not take a Snapfish for a swim? Because there's already one shark in the space: a little company called Wal-Mart(NYSE:WMT).

Knowing that Wal-Mart is swimming these waters should lead shareholders to wonder: Is this move a moneymaker or simply a way to try to grab market share? With per-print prices of $0.10 to $0.12, Snapfish isn't offering anything Wal-Mart hasn't already covered. And worse yet, the Snapfish service has the potential to cannibalize HP's printer and consumables sales.

Just try the math. Up front, consumers save the $200 or more on the photo printer. Next up, they save on paper and ink. Consumables for HP photo printers run prices up to between $0.25 and $0.40 per print, depending on how cheap you can purchase the goods.

Since imaging equipment and consumables are among the most vital pieces of HP's growth strategy, stockholders might wonder whether deals like this aren't making it just a bit too easy for digital shutterbugs to avoid HP's printing products altogether. It makes little sense to me, especially since HP has already seen margin erosion in its imaging biz because of tough competition from the likes of Canon(NYSE:CAJ), Epson, and Lexmark.

Seth Jayson still remembers when a good print meant a cool, creamy stop bath. At the time of publication, he had positions in no company mentioned here. View his stock holdings and Fool profile here. Fool rules are here.